While Indonesia has long had a small and extremely wealthy elite, the steady economic growth and political stability that followed the departure of President Suharto and the Asian Financial Crisis in 1998 has lifted millions of people out of poverty and created a new middle class. The number of Indonesians in this category rose by 40% between 2003 and 2010, according to former minister of finance, Muhamad Chatib Basri.
By some estimates the middle class, defined as having an annual income of at least $3500, now makes up about one-third of the population, making it bigger than the combined populations of Australia, Malaysia and Singapore. With more disposable income, a larger proportion of the population is beginning to travel around the archipelago, often to see family and friends, and increasingly on business and for leisure.
Indonesians made some 251m domestic trips in 2014, according to the Ministry of Tourism (MoT), and that number is expected to rise to 254m trips in 2015. By 2019 domestic tourist movements are forecast to reach 275m. According to the World Travel and Tourism Council, domestic travel spending accounted for more than three-quarters of all travel spending in 2013. It estimates domestic travel spending reached Rp407.43trn ($33.68bn) in 2014, and over the next decade the council is forecasting growth of 5.3% a year to reach Rp675.19bn ($55.81bn).
The Lure of the Capital
The influence of domestic tourism is perhaps most notable in Jakarta, where, alongside a handful of headline grabbing luxury hotel openings, there has been a rapid expansion of budget accommodation, with much of it in the three-star category, which experts say is most popular with Indonesian travellers. Hari Wibowo, manager of international promotion for Enjoy Jakarta at the Jakarta Tourism and Culture Office, told OBG that the capital was host to 37m domestic visitors in 2014, with this number expected to reach 40m in 2015.
The vast majority of hotels, estimated at about 90% by Poul Bitsch, president-director of Discovery Hotels and Resorts, which operates a variety of hotels including the five-star Hotel Borobodur in Jakarta, are focused entirely on the domestic market. Even at the Borobudur, Bitsch says about half of the guests are Indonesian.
To cater to less wealthy Indonesians, two- and three-star hotels have also expanded across the city. Many of the properties are leased, and the hotels tend to have a small number of rooms and relatively few staff. Often these more affordable offerings are situated close to bustling shopping centres and markets, giving local visitors easy access to the food and shopping that are one of the key draws of a visit to the capital.
Exploring the Archipelago
Even in Suharto’s time, the government ran campaigns encouraging Indonesians to travel the archipelago and discover the country’s natural beauty. From as far back as 1996 the Indonesian government has viewed domestic tourism as a way to create a sense of nationhood and encourage social integration. The country’s new democratic leaders share that sense of nation-building. Leveraging on the Indonesian motto of “Bhinneka Tunggal Ika”, which means “Unity in Diversity”, the campaign for domestic tourism has the theme of, “Kenali Negerimu, Cintai Negerimu” which, in English means, "Know your Country, Love your Country”, and is designed to encourage Indonesians to explore. The government’s introduction of the “Cuti Bersama” or “Joint Leave” holidays for civil servants, extending the number of days off around public holidays, which are the most popular times to travel, has encouraged families to take short breaks together. The Hari Raya Aidlifitri holiday that follows the Muslim fasting month of Ramadan is the most popular time for Indonesians to travel, with bus, ferry, train and air tickets sold out, and hotels often fully booked.
The rapid expansion of air travel, with the proliferation of low-cost carriers, has been a key factor in the growth of domestic tourism. For many years, discovering the country was quite difficult, not only because Indonesians lacked the money to travel, but also because getting around was itself rather difficult. Nowadays, Indonesia has some 14 airlines providing regular passenger services, according to the Centre for Asia-Pacific Aviation, and aggressive competition on many routes has pushed down fares across the archipelago. The domestic air travel market has nearly doubled in size over the last five years and is now among the 10-biggest in the world. The rapid growth in airlines is indicative of latent demand. Lion Air is the undisputed leader serving more than 30 destinations across the country, but Citilink, the low-cost unit of Garuda, is trying to close the gap.
The government is also investing billions of dollars to improve connectivity, whether in terms of aviation, sea travel, roads, railways or telecommunications. In 2014, seven new airports opened with a further five due to open throughout 2015. Existing facilities including Ngurah Rai International Airport in Bali and Jakarta’s Soekarno Hatta are being upgraded to cope with the rapid growth in air traffic.
As part of President Joko Widodo’s commitment to empowering regions and districts, many local leaders have identified tourism as a source of growth for their areas. According to Budi Tirtawisata, chief executive at the Panorama Group, a local tourism and hospitality company, governors are aware of the value of tourism. Similar to foreign visitors, Indonesians like to visit Bali and Lombok, but a 2013 survey of Indonesians’ favourite places to visit by global travel group Skyscanner suggests Indonesians have an interest in exploring more adventurous destinations. Survey respondents put Labuan Bajo in Flores, the gateway to Komodo National Park, at the top of their list.
The growth of the middle class and the rapid expansion of air travel have been the main catalysts for the growth of domestic tourism. The World Bank estimates that gross national income per capita rose from $2500 in 2010 to $3580 in 2013. For the industry to meet its goals, however, the government will need to deliver on its commitments to improve infrastructure while travel operators will need to understand that Indonesians are becoming increasingly sophisticated travellers. While Singapore has long been the playground of wealthy Indonesians, the proliferation of budget flights means ordinary Indonesians are increasingly likely to have travelled too. Moreover, many are connected to social media and the internet, with around one-quarter of Indonesians currently smartphone users and at least 69m with Facebook accounts. “Indonesians’ expectations have increased greatly regarding standards and quality of food and hotels. After travelling overseas, they are expecting the same high standards in their own country,” Dony Oskaria, CEO of local travel group AntaVaya, told OBG.
Oskaria notes that those who want to find success in the tourist industry in Indonesia need to focus on their digital and online presence and engage with social media. As local tourists become more discerning, hotel operators that cater to that market will also need to invest in improving their operations to keep customers coming back. Bitsch notes that turnover rates in the capital’s hotels, particularly in the two- to three-star category, are extremely high. Strong competition for employees has fuelled high salaries and rapid promotions, perhaps before people are ready, undermining service standards. Occupancy rates are also feeling the pressure from a December 2014 policy that banned government officials from holding events and meetings in hotels and curbed travel budgets.
Significant competition has also led to a rationalisation of the country’s aviation industry after years of rapid growth. The depreciation of the rupiah, while encouraging Indonesians to take their holidays at home, has only added to airlines difficulties because most of their costs are in US dollars. Some operators have gone out of business or suspended operations, while others have slowed expansion.
In the wake of the crash of AirAsia Flight 8501, the government also moved to raise the floor price for airfares in a move it said was designed to improve safety. Instead, experts worry it will make it difficult for airlines to offer heavily discounted fares and may deter some passengers from travelling. “Certain price sensitive passengers – the type of passengers that likely did not fly before low-cost carriers were introduced into the market – rely on these fares,” aviation industry group CAPA noted in an analysis of the decision in January 2015. “Without these, passenger traffic could decline. The impact on tourism and local economies will inevitably be negative.” CAPA expects passenger growth in 2015 to reach about 5%, the slowest in five years. Moreover, even with the rapid expansion of air travel in the past few years, connections to Indonesia’s eastern islands remain limited. Hotel development has also been slow, with construction still focused on the hotspots such as Bali and Lombok.
The government’s determination to improve connectivity should ease some of these problems in the years ahead. The bigger challenge will be ensuring the country’s economy continues to expand at a pace that allows more Indonesians to join the ranks of the middle class with disposable incomes to spend on travel.
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